What does an employer do when it decides that it cannot afford to continue to employ an employee at his or her current remuneration? A recent case of the Fair Work Commission[1] has determined that these circumstances do not constitute a ‘genuine redundancy’ for the purposes of the unfair dismissal exemption under the Fair Work Act 2009.

Meanwhile, in a different take on a similar issue, Qantas Airways is involved in a dispute with its employees and their Union over what the Transport Workers Union alleges amounted to ‘downgrading’ of jobs without meaningfully changing the duties or responsibilities of that role.

These matters raise the question, if an employee declines a proposal to reduce pay, then what?

Does a proposed pay cut lead to genuine redundancy?

Parabellum International Pty Limited (Parabellum) has provided services to Chevron Australia Pty Limited on its Barrow Island oil and gas project since 2012. In 2016, Chevron sought to reduce its contract prices with Parabellum.

Parabellum employed four Emergency Services Officers, and, as proof that the vestiges of the mining boom are still with us, paid them well in excess of the rates required by the relevant Enterprise Agreement. When Parabellum asked these employees to cut their pay by around AUD21,000 or 13% (a reduction that still would have seen them paid above the Enterprise Agreement rate), the employees declined.

Unable to secure agreement to the pay cut, Parabellum terminated the employees’ employment and paid them redundancy entitlements. New employees were hired to do the same job on lower pay. The employees brought an unfair dismissal claim and Parabellum argued that the employees could not bring such a claim as the termination was by reason of ‘genuine redundancy.’[2]

The consideration then boiled down to whether it could be said that the employees’ jobs were “no longer required to be performed by anyone because of changes in the operational requirement of Parabellum’s enterprise.” Parabellum argued that a broad view had to be taken of the concept of a ‘job’, including all contractual arrangements such as remuneration. The employees argued, in essence, that a dismissal cannot be a genuine redundancy just because an employer can find another person who is prepared to do the job for less pay.

The Commission agreed with the employees, saying that a person’s job is constituted by the functions, duties and responsibilities associated with the job. The remuneration is the value placed on performing the job. Given that the roles were still required to be performed, and were in fact still being performed (albeit for lower remuneration) it was not a case of genuine redundancy.

Because the employer’s jurisdictional objection was dismissed, the case will now go on to be dealt with in terms of the unfair dismissal jurisdiction, where the Commission will consider whether the termination was harsh, unjust or unreasonable.

Certainly this case stands out as the jobs remained identical in all respects other than what the employer could or wanted to pay for them. It is also fair to say that it is a departure from established reasoning that pay is in fact part of a “job” and a fundamental part at that. If the job at a particular pay does not exist anymore then isn’t the more logical conclusion that the role is in fact redundant? Surely that is a more justifiable and fair outcome for the employee when the alternative is termination on notice (albeit that in itself would create legal questions).

More frequently, we see restructures which involve both a change to the job and to the remuneration (such as in the Qantas matter described below).

Qantas and the reclassification of roles

In 2016, Qantas made eight roles in its QCatering business redundant. It offered affected employees redeployment to new lower graded roles. Employees who took redeployment to those roles now argue that there is no meaningful difference in their work to their previous, more senior roles. The Union is pursuing the matter in the Fair Work Commission under the dispute settling procedure in the Enterprise Agreement. The Union is seeking that the Commission make a determination that the new roles be classified at a higher grade. If the Union is successful, there is a likelihood that Qantas will be required to reclassify those employees. It may also throw doubt on the genuineness of the redundancies of those positions.

There has been no decision from the Commission as yet, so we will watch this case with interest.

Implications for restructuring and reducing labour cost

These cases raise some interesting challenges for employers who may have employees who are paid above market, or where there is a view that tasks can be undertaken by more junior employees. Some of the more challenging questions that arise are:

If an employee refuses a reduction to remuneration that is no longer sustainable, what then?

Would the reasoning in the Parabellum case apply to circumstances where an employer decides that the same duties can be undertaken by a more junior employee? In these circumstances, the ‘functions, duties and responsibilities’ remain the same, all that changes are the employee’s qualifications and attributes.

How do you assess whether a new role is sufficiently ‘different’ to justify a different (lower) classification and remuneration?

How can the risks associated with redeploying employees into lower graded roles be managed?

These are all challenges that need to be thought through by any employer embarking on a restructure or looking to reduce costs. Certainly the Parabellum decision and challenges to classification decision by employers have made it more complicated.

This article initially appeared on the K&L Gates LLP website and has been reproduced with permission.